Jamie Dimon Says Trade War Behind Market Crash [Full CNBC Transcript]

WHERE: CNBC’s “Power Lunch” – Live from the Business Roundtable CEO Innovation Summit in Washington D.C.

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with JP Morgan Chairman and CEO Jamie Dimon and CNBC’s Becky Quick on CNBC’s “Power Lunch” (M-F 1PM – 3PM) today, Thursday, December 6th– live from the Business Roundtable CEO Innovation Summit in Washington D.C. The following is a link to video from the interview on CNBC.com:

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JPMorgan CEO Jamie Dimon blames trade war for market turmoil

Fed runs the risk of doing 'too little, too slow,' says JP Morgan CEO

BECKY QUICK: Again, we are joined by Jamie Dimon right here, right now, who is not only the Chairman and CEO of JPMorgan, he is also the Chairman of the Business Roundtable. And that’s the event that we’re here at today. And Jamie, thank you so much for taking the time to do this.

JAMIE DIMON: Always a pleasure to be with you, Becky.

BECKY QUICK: It’s great to see you. And we have a lot of things to talk about. And I want to talk about the Business Roundtable, but because of the chaos in the markets today, I’m hoping we can start there.

JAMIE DIMON: Yep.

BECKY QUICK: Market’s down pretty sustainably. And I just wonder what you think is happening? Is this a real situation? Is this a fear factor? Or is this a factual factor that’s driving stocks down?

JAMIE DIMON: It’s a little of both. It’s a confluence of two things. We still have a strong American economy. So if you speak to most of the CEO’s, they say: their order books are good, consumer balance sheets are good, the economy is growing, wages are going up, they’re still hiring people, unemployment may very well hit 3.3% this year. That’s all good. On the other side of it, you have a bunch of geopolitical stuff: oil, Brexit. But I think the one that’s probably the rocking markets the most is trade. And the issue about trade is not just the direct effect, it’s the indirect effect that – how bad is it going to get? What can go wrong? And of course that fat tail of a trade war. You know, if you -- you weren’t even thinking about that a year ago, and now people are thinking “How bad could it get?” So that’s why you see, it’s kind of swinging the market all over the place. And that, with the added thing, rates are going up. And is it recessionary? Now I personally think the yield curve -- it doesn’t tell you at all. But you know, that’s the thought, that maybe there’s something in the yield curve that’s telling you might have a recession. So what we all see, and the actual facts on the ground, you still have growth in America.

BECKY QUICK: That’s a lot to kind of –

JAMIE DIMON: Growth in the world. We just met with the IMF. 3.7% this year. I mean, that’s among one of the better growth for the world – not this year, next year. 2019.

BECKY QUICK: But the fear factor, the idea of the trade war, which would you call it a trade war? Because originally you said – not --

JAMIE DIMON: It’s still a trade skirmish, but people are pricing in “How bad can it get?” And you know, you have to. Like “How bad can it get?” So --

BECKY QUICK: When you say people are pricing it in, you’re talking traders or you’re talking CEO’s who are trying to figure out what to do with their future --

JAMIE DIMON: Well, a little of each. Because you’re having, you know, a lot of people mention it being an issue, so it’s a minor issue for most companies, but it’s a big issue for some. And some companies, you know, they have to change the supply line. They have to make investments differently. They may hold off on something because they need to know where to build the plant—America, Vietnam, South Korea, China. Those things are just causing uncertainty which causes volatility.

BECKY QUICK: Are you hearing about specific companies that are pulling in plans? That are saying, “We’re going to wait and see what happens,”?

JAMIE DIMON: Yeah. A couple. Yeah. But it’s – like I said, take 100 companies, it’s 3, 4, 5. There’s another 5 that will tell you they’re worried about it and thinking about it, and it’s affecting pricing a little bit. But both of them will tell you it’s effecting them. But it’s just -- it’s the uncertainty. When you create uncertainty like this, and with potential tariffs and doubling down and 90 day timelines, you’re going to get a little bit of a rocking of the markets.

BECKY QUICK: Traders and investors overall seem to feel a little better about things, at least on Monday for a few hours.

JAMIE DIMON: Yeah.

BECKY QUICK: After we got out of the G20.

JAMIE DIMON: Yeah.

BECKY QUICK: And then we started thinking, “Okay, these are pretty complicated talks.” We’ve got 90 days to come up with a solution. Where do you think we stand in 90 days?

JAMIE DIMON: Look, the -- I’m going to tell you what I think the likely outcome is, that they make enough progress in 90 days, and actual progress: if you look at the Chinese, they’re actually allowing some companies to buy in industries, they’re talking about making actual immediate changes when they had their press release, both about buying things and changing -- they acknowledge that IP’s are an issue and are trying to set up a process to try to make – you know, fix IP’s. So if they do that, my guess is at the end of 90 days, it’ll get extended more. They can’t get it all done in 90 days. I think it’s too complicated to do that. But again, it creates another cliff. You have to wait for 90 days to see what it means. And so – that kind of uncertainty is just not necessarily good for the markets. So I am hoping it works. I hope these important issues get resolved.

BECKY QUICK: You’re hoping, are you expecting that they will?

JAMIE DIMON: I, again, this is all about odds. I give it a higher chance. You know, 60% versus 40.

BECKY QUICK: 60% chances that there is a resolution.

JAMIE DIMON: But the risk is always if something goes south. You know, we arrested the lady from –

BECKY QUICK: Huawei --

JAMIE DIMON: -- Huawei and what does that mean? And the rumors now that, I heard that they arrested some Americans in China. And that kind of stuff is just not helpful.

BECKY QUICK: If you looked at the situation with the Huawei CEO, I was reading through it this morning too and trying to figure it out. I mean it was done by the southern district in New York by the Department of Justice. To me it didn’t seem like it was a direct correlation with what was happening with the trade talks.

JAMIE DIMON: There is a good chance the White House had no idea it was taking place. I mean, Governments are big and complex places. So that does happen sometimes.

BECKY QUICK: Right. And if that’s the case, is the market overreacting?

JAMIE DIMON: It’s possible, yes.

BECKY QUICK: You haven’t heard anything one way or the other?

JAMIE DIMON: I’ve been busy all day. So you’ve probably heard more.

BECKY QUICK: No, just reading the tea leaves on what –

JAMIE DIMON: I don’t know.

BECKY QUICK: I want to talk to you about the Fed, because you did mention the Fed raising rates at this point. And that’s been a huge part of the factor that has made, I would say probably business leaders, but especially traders, pretty nervous, is the Fed raising too far, too fast. This morning, the market was betting that there’s only a 73% chance –

JAMIE DIMON: I saw that, yeah. I saw that.

BECKY QUICK: -- that they even go this month in December. And up to this point that had been kind of 100% baked in. What do you think? Should they – based on what you see in the economy, because you have a pretty long lead.

JAMIE DIMON: I think when you talk about the risk of the Fed doing it too much too fast, there’s also a risk of doing too little too slow. And you know, of course it’s easy for people who own assets to say it’s all about lower rates, but the fact is, a strong economy, normalizing rates is a good thing. So my guess is the Feds relooking at data right up to the last minute, and they probably will do December. I don’t think the Fed should be overreacting that the stock market went up or down, or because people are afraid of trade, or possible geopolitical events. Normalizing is a good thing. The world will be much happier if America is growing and rates are going up a little bit then if we have a recession and rates go down. It’s better for the world. So, I think they’ll probably stay on course. And of course people are going to just -- there’s speculation --

BECKY QUICK: I mean, you have a very good idea of what’s happening in home mortgages because of all the mortgages you make there and in car loans. And that’s been some of the areas that people say, “Look, things are weakening there.” Is that because rates are going up, or is there something else?

JAMIE DIMON: I don’t think -- it’s not weakening. Car loans are being made. 17 million cars being sold. You know, t’s humming along. I think a bunch of people have gotten a little more conservative in subprime auto. That’s a very minor total effect on the United States economy. And there’s -- and home mortgages mostly, because rates are going up, and you know, the option justice spreads are going up a little bit. So it’s a little more expensive to get a home. If I was the government, I would go out of my way to expand the credit box. Right now we still have restricted credit to a lot of buyers because of all the mortgage origination, securitization, purchasing rules and stuff like that. And that can be fixed. And it doesn’t create any extra risk. It just reduces the cost of mortgages to a bunch of people, and it opens up for more people to get mortgages.

BECKY QUICK: What has to happen for that? What – who would have to sign off for –

JAMIE DIMON: We need securitization requirements, okay, we still don’t have them seven years after the crisis. That alone – so you’re allowed to secure tie, you get some stuff off your balance sheet, in a very, very, very safe way. That would be great for the mortgage market. It would be great to reduce the cost of mortgages.

BECKY QUICK: You say securitization, and everybody automatically thinks, “Oh my gosh. We’re going back to CLOs, all the things caused the problems.”

JAMIE DIMON: That’s not the way people should think. There’s good and bad. There’s good CLOs and bad CLOs. There’s good this – and it’s a bad idea to think that securitization is a bad thing, it’s a very good thing. And remember the buyers are top notch professionals too. So it just allows institutions to make mortgages to have another way to sell them, a cheaper way, and it makes it cheaper for the individual. And the credit box is more – with all the litigation after the crisis, and FHA and all those things, what happened is a lot of banks and nonbanks, they don’t go right up to the limit of Fannie Mae and Freddie Mac. They put overlays. A little more -- tighter appraisal, a little more conservative appraisals, a little more conservative income. And that hurts lower income and that home value between 200,000 and 250,000. And that would be a good thing to make those more available. So there’s always a solution to issues. And – but obviously rates going up, reduce mortgages. But in American history, there have been a lot of times when rates are going up, home prices continue to modestly go up and the economy continues to grow. It’s not automatic that just because mortgages are going up that it’s going to hurt.

BECKY QUICK: There are people looking for bubbles everywhere, inflated asset classes, because of the reason that rates have been so low for so long, and one place that investors have been nervous about recently is just corporate credit. Are there problems with the corporate credit market?

JAMIE DIMON: No. I think people are -- we don’t -- the corporate credit market in 2007, the bridge -- the underrated bridge book on the street, 480 billion. Today 80. There are no sieves, no bad CLO’s, no bad CDO’s, no subprime to speak of, in a whole bunch of categories, much less leveraging the banking system and the nonbank system. And then you’re looking at leveraged loans, yeah there are leveraged loans. That’s a normal way to conduct business. People buy companies with leverage. But the banks own it – which is 800 billion or something of Term A loans, which is pretty safe. The Term B loans are predominately owned by nonbanks, but they look to be okay too. There is more of it, you know. I think if you looked at the bubble anywhere it would be in government bonds. We’re way too suppressed now for the better part of eight years. And that’s the other side. That you know, you don’t want to find out that we have inflation and we have to sell -- United States has to sell $1.8 trillion of bonds, between the government of 1.2 trillion and the Federal Reserve so far plans to sell 600. That’s a huge difference from a couple years ago. And so that’s – the supply and demand is different. So I wouldn’t be a buyer of government bonds at these prices. I honestly believe the ten-year should already be at 4%. Nor do I think if it was at 4% it would be a disaster. The American economy is growing at 2.5 or 3.

BECKY QUICK: You know what, you can say it is being artificially held down, but you could also say, “Look, if we compare that to the German tenure, that’s going to be -- act as gravity on U.S. tenure rates too.” I mean, how much of this is --

JAMIE DIMON: Furthermore, countries have different growth rates and different currency curves and stuff like that. Just because they’re different doesn’t mean that one does the other. But in this particular case, I think you’re – it’s mostly right. But that’s also because the ECB is buying bonds.

BECKY QUICK: Right.

JAMIE DIMON: Okay, so when I say suppress, I mean globally suppress.

BECKY QUICK: Right.

JAMIE DIMON: Not just parts of the U.S. Yeah. Can we talk a little about goes on out here? What we should all be optimistic about?

BECKY QUICK: Yes. Let’s switch to that, and let’s start with the jobs report, it’s coming out tomorrow. You announced an initiative at JP Morgan today, to take $6 million and spend it on job training here in the D.C. area. It’s something you’ve been doing around the country and even around the globe. Why? What are you seeing in terms of these jobs? And what are you seeing in terms of --

JAMIE DIMON: So take a big -- we’re at 3.7% unemployment, on its way down. 7 million open jobs. 7 million people looking for jobs, okay. More open jobs per person than we’ve ever had in the United States of America. So this, what we’re doing here at JP Morgan is a microcosm of around the world, and it is a microcosm of what the BRTs doing, and so what I’m about to say is happening everywhere. So these business leaders, and most of them are CEOs, and most companies do this by the way -- at the ground level, they’re doing kind of what we’re doing here. So here it’s $6 million over you know, 3 to 5 years, to help high school kids get certifications so they can get the technology jobs which are right here. You know with Amazon coming and people like us expanding, a lot of companies expanding. The jobs are here. The people need training. And that’s what it is. And we do this in Detroit, and Indianapolis, and San Francisco. And there’s a booklet, which you can get of all the BRT companies of the 100 different things we do. And now that BRT is doing what I call 11 test kitchens.

BECKY QUICK: What is that?

JAMIE DIMON: We’re going to 11 cities. We have a bunch of the big companies, a bunch of the big mayors and stuff, have organized things – what can we do to accelerate jobs? It can be apprenticeships, internships, high school, community college, college. It could be anything like that that gets kids well-paying great jobs. And you know, this will work, but it’s got to be done by government and business. It can’t be done by government alone, and it can’t be done against government. You know, so businesses need to help the government and vice versa.

BECKY QUICK: And what do you do from government?

JAMIE DIMON: And here it’s all about high-tech. So, you know, a lot of the jobs around the world will be fairly high-tech related jobs.

BECKY QUICK: What do you need from government? I understand that it’s hard to do it without the corporations jumping in, because you need to tell me exactly what you need.

JAMIE DIMON: Ready? Here’s an apprenticeship program that works in Denver, comes out of Switzerland and works in Canada. The high school kids, you know, 30% go to college, 70% go to jobs. And -- just because you go to a job, doesn’t mean you can’t go to college afterwards. But an apprenticeship. So in 10th grade, you spend a day a week there. In 11thgrade, you spend two days a week there. In 12th grade, you spend three days a week there. You get paid while you’re there and you get credit for what you learn. Because learning how to operate machine tools or computers or stuff, you get credit. When you get out, you already have a well-paying job because a local business helped train you. And so what does this need to do? Teach the teachers, allow very quick certifications, we can’t go through six years of getting something like that certified. Get local businesses working there. And a lot of government programs have money that can help get these things accelerated around the country. And you know, America used to be great at this and we’ve become terrible.

BECKY QUICK: What happened? Why do you think --

JAMIE DIMON: And I’ll give you another one which is, you know, part of this innovation thing is innovation is infrastructure. So what have we done in America? We put a man in the moon in eight years, which did two things: unbelievable capability in R&D and now 12 years to get the permits to build the bridge. How did this nation of ours become so bureaucratic? And of course, having 12 years to build a bridge means the extra costs and uncertainty. What happens when you reduce that to four years? Which they do in Canada, by the way. You assume we could be as good as Canada or something like that. And then innovation. So the internet, the health services, the moon program, huge innovation around it. So our R&D, like fifteen years ago was five times China. Today it’s equal to China. Okay? And these companies do the R&D. So you look at R&D and capital expenditures, large companies take the two or three thousand large companies, they’re like 70 or 80% of it. And the American public should know, that is what drives jobs and productivity and growth. Is those huge capital expenditures. Those huge R&D. Here you have Boeing, drones, Ai around, and driverless cars, this is going to be unbelievable for America going forward. And this is the BRT trying to make a real effort to prove society. Okay?

BECKY QUICK: Do you feel like you have a willing partner in the government right now? Are they listening? Do they hear what you say?

JAMIE DIMON: Yeah, you have to -- the administration, yes. Because they want to get infrastructure done. Work skill, jobs, done. They want to be – you know, the guidelines for businesses, they have to have competitive tax systems, which is equally important for innovation in the long run by the way, and then when you go around the country another very important point, some of the stuff we see is very bad is state and local. You know, just almost like this endless corruption to get certifications of occupation or permits to build something or something like that, so one of the things all of us do is we work with local governments. And some of these things are fabulous. I mean, outstanding. Detroit. Mayor Duggan. Okay? New Orleans. Mayor Landrieu. I mean, he’s not there anymore, but – and some are so political and bureaucratic and backwards and not conducive to business. This whole things with Amazon looking at cities, it kind of brings out -- if you want to become -- you want to attract good jobs, and therefore, you need schools, infrastructure, arts, all those things that make it attractive to someone to want to be in your city and stuff like that. A competitive tax system. But if local business, if local governments are hostile to business, it’s not going to happen. So once again, the two have to work together to have a successful society.

BECKY QUICK: Is that why you signed up for another year as the Chairman of the Roundtable?

JAMIE DIMON: Yes. So the BRT does, you know, we do tax and trade and immigration and innovation and infrastructure. And we’re trying to get policies that are -- it’s one of the organizations, policies that are good for all of America. And it’s shared success, it is inclusive capitalism. Because we all know if we get society doing better education, more people are involved, the wages will be shared better across the board, society will be happier, there will be more -- obviously, far more jobs available, and well-paying jobs. And so I think something like the BRT, the Chamber of Commerce, have to do that. So the CEOs of the BRT have done an exceptional job, a real detail level. Like today we’re rolling out – I think in a month we’re going to roll out innovation policies, which you’ll find really interesting. And I think today we’re rolling out privacy policies. The privacy group, led by Julia Sweet, did an unbelievable job to lay out what we think the principles of privacy should be America -- data privacy. I think that’s unbelievable. I mean, it takes – and that’s 40 or 50 companies working together to really think through the issues. And we don’t always all start at the same point. So it takes a while.

BECKY QUICK: No. You do it before the regulators do it, too. Come up with something --

JAMIE DIMON: And hopefully it will help inform smart regulation that’s great for consumers, that’s great for businesses, who understand the requirements, the compliance, your execution risk of doing it right or not doing it right.

BECKY QUICK: Jamie, I want to go back to something you said earlier. And I don’t know if it was this week or last week. You made comments about what you see in terms of a recession being out there. And the way it was reported was that you could see a recession potentially happening in 2020. I think you said maybe 2020, maybe 2021. Do you actually see that, or is it just beyond – as far you see, there’s nothing?

JAMIE DIMON: I don’t know. I mean you guys always ask that question, and no one knows, and I think it’s actually almost a waste of time to guess. I’m simply saying that there are a lot of things happening, that maybe come together in the wrong way in late 2020, 2021. It’s possible – and this is another very important thing, we’ve had 20% growth over 10 years. It should have been 40%. That anemic growth is part of the reason you have lower capital expenditures that we need to create enough high paying jobs, people didn’t have enough opportunity. It’s not the tail end of the cycle, but it’s possible this acceleration we’re seeing is traditional for the last third of the cycle. So it’s possible we have three years left. And, you know, with more jobs and more wages, you still -- capital expenditures are still up, by the way.

BECKY QUICK: I was going to ask you about that. Because there are different reports in different places.

JAMIE DIMON: People are not looking at the facts. They’re still up year over year. There were up more in the first quarter than in the second quarter or the third quarter. Because a lot of these companies, and the real thing about tax reform wasn’t “What’s the immediate effect?” We knew there was an immediate effect. Some people raise wages, some announce plans, and some open another factory or two. But the real effect is the cumulative retention of capitol redeployed in productive uses in the United States for the rest of our lives. That’s the real effect. And there are foreign officials that I meet with all the time, you know what they say? “You made it much tougher for us to compete with American companies.” Because they understand now that someone who can will build a plant here or build their company, when before they definitely would have put it somewhere else. The notion that somehow having uncompetitive taxes is good for our country is a crazy notion. And know people who hear me say that -- I love for them to call me up, I don’t understand how they think it’s a good idea to have returns. Remember, the world is at 40%, and we were 40, and they came down to an average OECD 20, we stayed at 40. All that means, the average returns are twice as good if you had an opportunity to put a plant or a company overseas sometimes. Why would you want to create that environment? And obviously on the individual side you could do things differently. You know, the Business Roundtable supports the earning of tax credit. So I want to get more income to lower paid people. Most of the CEO’s do. They promote a huge amount of sustainability. You know Mark Sutton, International Paper, showed us today all the things, all these companies are doing in a video, which I get it 2 million people have watched. But the CEO is speaking about all the wonderful things that companies are doing. JP Morgan will be itself 100% green in two or three years. You know, so these are good things. I think the American public should know about them. And I think Steve Burke should put all what we’re talking about here on NBC Morning News, NBC Nightly News, so we educate the American public about why good business is really good for the country.

BECKY QUICK: Jamie, I appreciate your time, and you always have a platform here on CNBC. Thank you very much.

Author: Jacob WolinskyJacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. -
Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold